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China Asserts Stricter Control over Staffing Agencies

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

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An amendment to China’s Labor Contract Law regulating staffing agencies and the use of contract workers was passed by the Standing Committee of the National People’s Congress on Dec. 28, 2012.

The amendment took effect on July 1, 2013.

Labor Dispatch

In a labor dispatch situation, an employer engages a staffing company, which provides the workers an employer needs.

“Dispatch workers are commonly used in China, especially companies that use migrant workers,” said Oliver Dong Zhanlue, HR director for Zhejiang Supor Co. Ltd., the leading cookware manufacturer in China.

Because the workers continue to be employees of the agency, rather than the client company, employers save on social security payments, workers’ compensation and severance pay. In addition, the employer can simply return the workers to the staffing company without going through complicated termination procedures because there is no employment relationship between the dispatched workers and the employer. For these reasons, more and more employers have been using this type of firm.

Currently, the law states that the registered capital of a labor dispatch company should be at least RMB 500,000. The amendment:

Increases the capital requirement to at least RMB 2 million.

Requires the company to apply for a license from the local labor bureau.

Requires that a dispatched worker receive the same remuneration as that received by a permanent employee.

Encourages employers to hire most workers directly and defines the use of dispatched workers as only for temporary, auxiliary or substitute jobs -- such as positions lasting no more than six months; noncore positions that provide support services to core business positions; or regular positions that can be filled by dispatched workers during periods of absence due to full-time study, maternity leave or vacation.

Imposes a limit on the percentage of dispatched workers employed by host companies relative to total staff. The percentage will be specified in later regulations.

“Employers generally believe the amendment is too strict,” remarked Zhang Yang, partner at China Star Limited for International Economic & Technical Cooperation, an HR solutions provider for the China market. “The number of dispatch workers will be seriously cut down. Considering the number of employees and payroll affected, employers are eager to figure out a solution to these changes,” Zhang told
SHRM Online.

Employers should define their core business jobs, temporary jobs and substitute jobs as well as the use of dispatched workers in their company, and also adjust the proportion of dispatched workers among the total number of employees in their company in accordance with the amendment before it takes effect, Zhang said.

“How to consider dispatch workers and how to retain them has become a big issue,” said Dong. “Now employers will have to make lots of changes.”

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.